Tenants are paying less for prime offices in Nairobi compared to other regional cities such as Kampala, Uganda and Dar es Salaam, indicating effects of oversupply that has prevented property developers from raising charges.
The prime category refers to Grade A offices that are in key business locations, feature high-quality contemporary designs, and are equipped with cutting-edge facilities.
Real estate management firm, Knight Frank says in its Africa office market review for the second half of 2024 that the average rental price of a Grade A office in Nairobi stood at $13 (Sh1,685) per square metre, having come down by 15 percent over the last four years.
The average rental yield for developers in Nairobi stood at 8.5 percent in 2024, also the lowest among East African capitals.
Kampala’s asking price per square metre, as per the Knight Frank data, stood at $16.50 (Sh2,139) per square metre, while Dar es Salaam’s average rental price was $15 (Sh1,945). Both cities offered landlords a rental yield of nine percent.
Developers have responded to stagnating demand for high-grade offices by cutting supply of new space, opting for better-returning segments such as industrial and retail property.
“The office sector (in Nairobi) continues to grapple with oversupply, which has resulted in a contraction of planned future developments. For example, approximately 16,000 square metres of space is expected to be completed in 2025, a significant decrease from the over 50,000 square metres introduced to the market in 2024,” said Knight Frank in its Africa office markets dashboard report for the second half of 2024.
As a result of supply outstripping demand, occupancy in the city’s prime offices fell to 72.7 percent in the second half of 2024, compared to 77.2 percent in the first half of the year.
Among the other eight African cities analysed in the Knight Frank report, only Lilongwe in Malawi and Harare have cheaper grade A rents compared to Nairobi, at $6 (Sh777.84) and $10 (Sh1,296) respectively.
The most expensive cities for renters are Lagos and Abuja in Nigeria at $55 (Sh7,130) and $46 (Sh5,963) per square metre respectively, and Cairo at $37 (Sh4,796).
Nairobi’s status as a regional commercial and financial hub saw a steady increase in prime office space in the previous decade, as developers sought to satisfy demand from international investors, governments, diplomatic missions, and multinational corporations.
Developers primarily targeted Upperhill and Westlands for the new developments, complementing the Nairobi Central Business District where accessibility and supply of Grade A offices was limited.
The Covid-19 pandemic, however, upended the commercial property market as many firms adopted remote working arrangements, with the subsequent economic difficulties further eating into demand for space.
Other companies in Nairobi also shifted to smaller fitted-out office spaces as flexible working patterns became the new normal.
This saw landlords grant concessions on lease renewals which included lowering asking charges.
